PTI govt revises public debt projection upwards

Estimates debt level will swell 100% to Rs47.6tr in five years

ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government has revised the public debt projection upwards, estimating now that the debt in absolute terms will swell by 100% within five years to Rs47.6 trillion or over three-fourths of the size of national economy.

The revised projection has been approved by the federal cabinet this week as part of the Budget Strategy Paper 2020-23.

The Ministry of Finance said the public debt projection had been revised upwards due to a higher budget deficit and higher-than-anticipated devaluation of the currency in last fiscal year 2018-19.

There has been criticism against the Ministry of Finance for its inability to make a realistic projection just 15 days before the end of previous fiscal year, which created a hole of Rs800 billion.

The public debt, which stood at Rs24.2 trillion or 72.1% of gross domestic product (GDP) at the end of Pakistan Muslim League-Nawaz (PML-N) government, may surge to Rs47.6 trillion or 77% of GDP by 2022-23, showed the Budget Strategy Paper. The revised estimate was higher by 7% of GDP as compared to the nine-month-old projection.

There will be an increase of Rs23.4 trillion or 97% in public debt during the PTI’s five-year term as compared to the debt level left behind by the PML-N. About one-third addition to the public debt during the PTI government’s tenure has been projected on account of devaluation of the rupee against the US dollar. During its first year in power (2018-19), an increase of roughly Rs3 trillion in the public debt came because of currency devaluation.

Prime Minister Imran Khan has remained critical of Pakistan Peoples Party (PPP) and PML-N’s economic policies that, according to him, led to a huge increase in the country’s debt burden. In February last year, PM Imran vowed to bring the public debt down to Rs20 trillion by the end of his government’s term.

Public debt is exclusive of the liabilities and debt taken by the public and publicly guaranteed entities.

In the first year of PTI government, the federal government added Rs7.6 trillion to the public debt, which skyrocketed to Rs31.8 trillion by the end of June 2019.

The Budget Strategy Paper showed that the public debt would increase to Rs36.7 trillion at the end of current fiscal year - an addition of Rs4.9 trillion. Of this, the increase of Rs3.2 trillion is projected because of budget deficit and the remaining Rs1.1 trillion or 26% because of currency devaluation and cash buffers.

In terms of the size of national economy, the public debt is now projected to reach 83% of GDP in FY20 as against initial estimate of 77.6%.

This is despite the fact that the government has squeezed expenditures by Rs200 billion and showed an increase of Rs100 billion in net revenue receipts for the current fiscal year in the Budget Strategy Paper.

Parliament had approved a Rs7-trillion budget but in the revised estimate it has put it at Rs6.8 trillion. Similarly, after paying provincial shares, the original net federal receipts had been estimated at Rs3.46 trillion, which have now been revised upwards to Rs3.6 trillion.

For fiscal year 2020-21, the debt has been projected to grow to over Rs40 trillion or 81% of GDP. Earlier, the government had estimated the public debt to be at Rs37.2 trillion or 75.2% of GDP.

The impact of fiscal deficit, which was earlier estimated at Rs2.6 trillion, has now been estimated at Rs2.9 trillion. For fiscal year 2021-22, the debt has now been revised upwards to Rs44.3 trillion or 79% of GDP as against earlier estimate of 70.6% of GDP.

For the last year of the PTI government, the public debt is projected to grow to Rs47.6 trillion or 77% of GDP as against initial estimate of 70% of GDP.

The 77% debt level in 2022-23 is highly unsustainable, according to the Fiscal Responsibility and Debt Limitation Act. Under the Act, Pakistan’s debt should not be more than 60% of GDP. This will eat up close to half of the federal tax resources in debt servicing.

Finance ministry’s reply

In the last fiscal year, the total public debt-to-GDP ratio increased to 84.8% compared with 77.7% as estimated at the time of budget due to “a higher fiscal deficit of 8.9% compared with the budgeted 7.2% for 2018-19,” said Omar Hamid Khan, spokesman for the Ministry of Finance.

Khan said the higher-than-anticipated depreciation of Pakistani rupee against the US dollar and building up of cash buffers in anticipation of zero borrowing from the State Bank in future also led to the revision in the debt projection.

He said in the current fiscal year the total public debt-to-GDP ratio was expected to decline by around 2% to stand at 83%, which was consistent with the Budget Strategy Paper, mainly supported by a lower fiscal deficit and relative stable exchange rate environment.

Published in The Express Tribune, March 20^th, 2020.

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